Third-Degree Price Discrimination and Consumer Surplus

Authors


  • I am grateful to Iñaki Aguirre, Robert Ritz, John Vickers, three referees and the Editor for very helpful comments.

Abstract

This paper considers the effects of monopoly third-degree price discrimination on aggregate consumer surplus. Discrimination is likely to reduce surplus (relative to that obtained with a uniform price), but surplus can rise under reasonable conditions. If the ratio of the pass-through coefficient to the price elasticity at the uniform price is higher in the market with the higher price elasticity then surplus is larger with discrimination (for a large set of demand functions). The relatively high pass-through coefficient implies a large price reduction in this market. With logit demand functions surplus is higher with discrimination if pass-through is above 0.5.

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